A New Global System
| Author | Lord Skidelsky |
| Position | British economic historian, emeritus professor of political economy at Warwick University, and author of a three-volume biography of John Maynard Keynes |
| Pages | 56-56 |
56 FINANCE & DEVELOPMENT | June 2019
BOOK REVIEWS
A New Global
System
THIS USEFUL COLLECTION of basic documents and
essays marks t he 75th anniversary of the Bretton
Woods Agreement of July 20, 1944. e Bretton
Woods system is chiefly identified with t he mon-
etary ag reement that set up the International
Monetary Fund (IMF) to help countr ies maintain
fixed exchange rate s. In fact, the IMF was part
of an interlocking set of institutions, including
the International Bank for Reconstruction and
Development (IBRD), progenitor of the World
Bank, and—t hree years later—the General
Agreement on Tariffs and Trade, forerunner of
the much later World Trade Organization.
Technically, these institutions were subordinate
parts of the United Nations. e whole ensemble
was viewed by the imaginative as an embryonic
world government, reflecting the revulsion ag ainst
laissez-fai re capitalism and uncontrolled politics,
which had seemingly led to t he Great Depression
of 1929–32, the currency and trade wars of the
1930s, and ultimately to the Second World War.
On the monetary side, the editors, Naomi
Lamoreaux and Ia n Shapiro, and Jeffrey Frieden
argue that the pre-1914 gold standard worked
because of wage and price flex ibility. is ignores
Charles K indleberger’s well-know n thesis that its
success was due to its being a British-managed
standard. Bar ry Eichengreen’s contribution is as
accomplished as one would expect—but is it real ly
true that the fixe d, but adjustable, peg system set
up in 1944 was brought down in 1971 by the US
dollar’s link to gold? Any reserve cur rency has to
maintain the confidence of its holders: modern
inflation targeting is as much a commitment to
sound money as is gold convertibility. e “orig-
inal sin,” rather, is human nature, which wants
tomorrow to come too quickly, and Michael Bordo
is surely right to say that it was not the gold lin k
but US inflation from the late 1960s that broke
the camel’s back.
Harold James’s elegant essay is the most
thought-provoking in the book. e Bretton
Woods agreement, he writes, was possible because
it insulated the monetary settlement from inter-
minable trade disputes, which held off tr ade wars
for 70 years.
A particula r strength of this volume is the space
it gives to the idea of the Global South. Selw yn
Cornish and Kurt Sc huler show that Australia
tried but failed to make f ull employment a central
concern of the IMF, but Eric Helleiner documents
how pressure from countries like Chin a, some in
Latin America, and India—sta rting with a Sun
Yat-sen paper in 1920 proposing an “International
Development Organization”—led to the setting
up of the IBRD as a “new kind of multilatera l
framework for developme nt.”
e section “Paths Taken and Not Taken”
includes Keynes’s International Clea ring Union
plan (which hardly gets di scussed) and various pro-
posals for flexible excha nge rates (Douglas Irwin).
It would have been worth mentioning that oppo-
nents of flexible rates, including Keynes , argued
that exchange rate depreciat ion could lead away
from balance of payments equil ibrium, depending
on the price elasticities of export s and imports.
Disappointingly, little thought is given to how
the world might escape the looming c onfrontation
between market-led globalization and economic
and political national ism.
LORD SKIDELSKY is a British economic historian, emeritus
professor of political economy at Warwick University, and
author of a three-volume biography of John Maynard Keynes.
Naomi Lamoreaux and
Ian Shapiro, eds.
The Bretton Woods
Agreements
Yale University Press,
New Haven and London, 2019,
504 pp., $29.50
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